Fevetree Drinks (FEVR) is a marmite stock for many investors.  It was recently added to Smithson Investment Trust (SSON) and the Finsbury Growth & Income Trust (FGT).

In the March issue of Master Investor Magazine I covered the premium mixer group: Fevertree Drinks in mixed spirits PDF download

Fevertree Drinks is at a crossroads with UK revenue declining by 1% in 2019.  Revenue outside the UK is continuing to grow but success in the US is far from assured.

Fevertree Drinks took the market by storm

Fevertree Drinks (FEVR) has benefited from powerful tailwinds since it listed in 2014.  The UK gin boom in the UK increased the demand for premium mixers.

Fevertree Drinks pioneered the shift towards premium mixers and took market share from Schweppes.  By most accounts, Schweppes was complacent as market leader and failed to spot the premiumization trend.

Fevertree Drinks introduced mixers with high quality, natural ingredients.  If the world was drinking Sunny Delight, the first company to launch a natural orange juice would have a hit.

Making a product with natural ingredients is hardly rocket science.  Other premium brands appear to have caught up and may now be taking market share from Fevertree Drinks in the UK.

Do people really care which brand of premium mixer they use?

This crux is whether premium mixers have a sustainable competitive moat? Do people really care which brand of premium mixer they use?  What happens if supermarkets develop a decent own-brand alternative?

It is hard to believe that premium mixers will enjoy the same brand loyalty as spirit brands.

There is already some evidence that pubs and bars are looking beyond Fevertree Drinks and towards other brands (see article).

Analysts may have made a common mistake when it comes to forecasting: extrapolation.  They failed to remember Stein's law: "If something cannot go on forever, it will stop."

Fevertree Drinks: from boom to gloom

Source: SharePad

Quality investors: Smithson and Lindsell Train

Smithson Investment Trust started adding Fevertree Drinks to its portfolio in July 2019.  It was announced in the fund's July Factsheet.

Findsbury Growth & Income started adding Fevertree Drinks recently.  This was revealed at the Finsbury Growth & Income AGM: see Portfolio Advisor article.

Fevertree Drinks remains a small position for Finsbury Growth & Income at 0.3% of assets.  But it was the ninth largest position in Smithson at the end of 2019 at 3.9% of assets.

Summary

Whether or not a company is a quality business depends on whether it can hold its own.  Rightmove benefits from powerful network effects while Apple's iPhone is a differentiated product.

Premium natural mixers do not appear to have a strong competitive moat. But consumer behaviour is hard to predict.

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Source: SharePad